Bad News for Digg – Valuation drops from $160m to $500k

It’s a sad day for Digg, the once super cool social bookmark site has dropped from a valuation of more than $160 million to the bargain basement price of $500,000. The buyer is New York technology development firm Betaworks, which is attempting to revive the news-sharing site that was outmaneuvered by Facebook and Twitter.

I’m not entirely surprised by this drop in value for the site. Back in 2006, Digg was the place to get news before anyone else; it was the first site I looked at in the mornings to see what happened while I was sleeping. And, I wasn’t the only one. Enough of us went there daily to help land Digg founder Kevin Rose on the cover of BusinessWeek in 2006 with a $60 million valuation.

But, now I hardly ever go to the site anymore and yesterday, Digg confirmed it sold its brand, website and technology to Betaworks. The price is a pittance for a company that once raised $45 million from prominent investors including Facebook investor Greylock Partners, LinkedIn founder Reid Hoffman, and venture capitalist Marc Andreessen in just one week.

According to insiders, Digg received higher offers from bidders that included technology and publishing companies and start-ups but ultimately decided Betaworks had the best plan for reviving its brand.

Founded in 2004, Digg was once one of the most promising start-ups in Silicon Valley. Digg users would post links on the site’s home page, then others would vote on their choices, determining the prominence of the stories they posted.

“They were one of the first social media sites,” says Kristina Lerman, an assistant research professor at the University of Southern California who has studied Digg and other social-news sharing sites. “They introduced social components like having friends and followers.”

The site quickly rose to prominence, in part due to founder Kevin Rose, a former cable television talk show host, whose charm helped sell the concept to Internet tastemakers. In the fall of 2008, Digg raised nearly $29 million in venture capital from Greylock Partners, Highland Capital Partners and other financiers in an investment valuing the company at around $164 million, according to Dow Jones VentureSource.

Over the years, the company was rumored to be in negotiations to sell itself several times, including to Google in 2008 for a reported $200 million. The deal was never completed.

But the audience started to drift away in early 2010 when services such as Facebook and Twitter exploded in popularity, as users preferred getting article recommendations from their friends or people they followed. I know I stopped going to the site for news around 2009, pretty much the same time Twitter established itself as the source for instant news having given us the very first reports of Captain Sully’s brave water landing and Michael Jackson’s death.

A series of redesigns not well-received by users also hurt the company. A site relaunch in the summer of 2010 triggered a backlash, with most users saying they preferred the old Digg. By the end of 2010, Digg’s audience had fallen by more than half, according to ComScore.

Newer social-news website Reddit. also stole some of Digg’s thunder. Last December, Reddit drew more visitors than Digg for the first time, according to comScore, and since then it has maintained that lead.

In March of last year, Rose resigned from the company. He is now a venture capitalist with Google Ventures.

Betaworks intends to fold Digg into News.me Inc., a digital media start-up that Betaworks launched in April 2011. News.me sends users links to news articles that their connections on Twitter and Facebook are reading and talking about. News.me, which uses an iPad and iPhone app and daily email newsletter, has about 10 employees.

None of Digg’s remaining employees will join Betaworks as part of the acquisition. Chief Executive Matt Williams will join venture capital firm Andreessen Horowitz as an entrepreneur-in-residence. Betaworks CEO John Borthwick will become Digg’s new chief.

Sad day for a once super cool site. But, it will be interesting to see what Betaworks has in mind for Digg. I will keep y’all posted.

Jennifer Jones-Mitchell

A global leader in social media marketing, Jennifer Jones-Mitchell has been at the center of traditional and digital PR since the mid 90s and has helped launch some of the world's most loved brands. She has been blogging about PR and social media marketing since 2007. Learn more at: www.jenniferjonesmitchell.com